Business context and reporting period
This is Park City Group, Inc.’s unaudited Form 10-Q for the three months ended September 30, 2016, its fiscal first quarter of fiscal 2017. ReposiTrak, Inc. is a wholly owned subsidiary included in the consolidated results; this is not a standalone ReposiTrak filing. The company provides SaaS and related services for supply-chain management and regulatory compliance, using a retailer/distributor “hub” and supplier “spoke” model. Subscription revenue is generally recurring.
Financial performance and position
- Revenue: $4.22 million, up 36% from $3.10 million in the year-ago quarter. Management attributed growth mainly to ReposiTrak subscriptions, new hubs, and more supplier connections.
- Profitability: Operating income was $676,399 versus an operating loss of $420,079. Net income was $614,453 versus a net loss of $407,292; after preferred dividends, income attributable to common shareholders was $427,649 versus a loss of $606,680. Basic and diluted EPS were $0.02 versus a loss of $0.03.
- Margins: Cost of services and product support was 29% of revenue versus 38% a year earlier, implying a services gross margin of approximately 71% versus 62%. Operating margin was approximately 16% versus negative 14%.
- Cash flow: Operations used $121,709 of cash, compared with $151,304 used a year earlier. Investing used $15,800, compared with $4.66 million, principally reflecting the prior-year purchase of marketable securities. Financing provided $79,762. Cash decreased $57,747 during the quarter.
- Liquidity: Cash and equivalents were $11.39 million at September 30, 2016. Working capital was $9.15 million, up from $7.85 million at June 30; current assets were $16.36 million and current liabilities $7.21 million.
- Debt: Total debt was approximately $3.16 million, including a $2.50 million line of credit and $663,871 of notes payable. The filing states that 79% of debt was variable-rate and 21% fixed-rate.
- Balance sheet and dilution: Total assets were $39.47 million and stockholders’ equity $31.75 million. The company reported 1.41 million warrants outstanding and approximately $5.8 million of unrecognized stock-based compensation expense.
Material changes versus the prior comparable period
- Revenue rose $1.12 million, while total operating expenses increased only modestly, from $3.52 million to $3.54 million; the company moved from an operating loss to operating income.
- Sales and marketing expense declined 17%, attributed mainly to lower marketing, promotional, employee, and travel costs. General and administrative expense rose 32%, principally due to employee-related costs and higher bad-debt expense.
- Receivables increased approximately $1.11 million from June 30, 2016, and the allowance for doubtful accounts rose from $75,000 to $150,000.
- Cash at quarter-end was $4.83 million higher than at September 30, 2015, largely because the prior-year period included purchases of marketable securities that were later sold.
Outlook, risks, and notable items
- Management expects revenue growth from pursuing new contracts with hubs and their suppliers. It expects service and support costs and sales and marketing expense to rise in absolute terms but decline as percentages of revenue. No quantified earnings or revenue guidance is provided.
- Management believes available cash and expected operating funds are sufficient for at least the next 12 months. It intends to reduce debt using cash and projected operating cash flow and may pay down, repay, or refinance debt. These expectations are not assurances.
- Operating cash flow remained negative despite quarterly net income; the increase in receivables was a significant use of cash. Management also cited increased bad-debt expense.
- Preferred stock dividends accrue at 7% if paid in cash or 9% if paid in kind. The company elected to pay dividends in kind beginning with the quarter ended December 31, 2015; additional preferred shares were issued for dividends during and after the quarter.
- Management identified no new risk factors beyond those in its fiscal 2016 Form 10-K, no material pending or threatened legal proceedings, and no material off-balance-sheet arrangements. Disclosure controls were concluded to be effective, with no material change in internal control over financial reporting.
- The company was assessing the effects of new accounting standards, including revenue recognition, stock compensation, and leases. Forward-looking statements are subject to risks described in its Form 10-K.
Important facts for investors to verify
- Whether growth in hubs and supplier connections continues and translates into recurring revenue and cash generation.
- Receivable collections, the rising bad-debt allowance, and the reasons operating cash flow remains negative.
- Line-of-credit terms, maturity, covenants, and exposure to variable interest rates; these details are not clearly provided in the supplied filing text.
- The future cost and dilution implications of preferred dividends paid in kind, outstanding warrants, and unrecognized stock compensation.
- The potential impact of adopting the new accounting standards, particularly revenue recognition and lease accounting.